Monday, September 30, 2013

Is Pristine Balance Sheet imperative for a prospective multibagger ?

Which company is this, with Debt Equity ratio of 2:1 , losses in two out of previous five years ?

Balance Sheet




Tuesday, September 24, 2013

Relaxo India or Bata Bangladesh ?

Tirumala, a friend of mine and also another friend communicated to me that Relaxo is a hot topic these days as Prof Bakshi has written a couple of reports on it. He asked me for my opinion on whether Relaxo would perform better or Acrysil.

I had initiated a discussion on Relaxo on the 8th of Jan 2010 at

What I felt and saw at the time were screen slapping me in the face with:

Sales/Market Cap ratio of 0.25

Cash flows of 60+ crores per annum on market cap of 200 crores

30 Crores per annum was spent on Ads per annum in 2010 and effects of which are noted well in Prof. Bakshi's reports.

The company has only got better since then.

I also wrote on the above link, on the 23rd of Feb
Posted By: amitdip
Date Posted: 23/Feb/2010 at 1:53pm
Good observation but I believe Rubber comprises only 33% or so of raw material and EVA accounts for 60% or so of raw material. Not sure how to track EVA foam prices.

Not a shadow of doubt that margins will be under pressure when raw material prices rise, but what happens is players from un-organised sector get wiped out into bankrupty and Relaxo survives because they refuse to/combination of unable to; pass on price to customer. They are lowest cost highest volume due to economies of scale of Slippers 3 lac pair a day so company is unlikely to go bankrupt, if 3 "chappal" makers survive in world, relaxo will be one of them

What I feel today is that Relaxo is selling for 1 times Sales with cash flows of 75 crores on Market Cap of 900 Crores. Still better than larger peer Bata at 2.8 times Sales etc.



- It is unlikely to make a dent in Shoes space, infact word BRAND does not connote much of a meaning in conventional terms.
Visit three sites popular in India, ,, and check the number of brands

And that is actually a subset of brands that have only hit India. More than 20 premium brands have not even significant presence in India.

Digressing a bit, of the top footwear brands like Salomon, Kathmandu, KEEN, TEVA, Merrell, INOV-8, Columbia, Patagonia, Mammut, ECCO, La Sportive etc. the brand behind the real brand is Gore-Tex. A magnificent company of epic proportions. Privately held, now a 3 billion $ company.

Its evidently clear to me ( with a chance to be wrong ) that future of footwear is not Relaxo. Perhaps I am not willing to bet on invincibility of moat of Chappals, or perhaps I am afraid
of losing money. I am not sure the brother and sisters of India would like to identify a strong association with 100 Rs chappal as a superior brand. Chappal/Flip-flop story is likely play for another few years with low income segment. I don't have the stats on how many are transitioning to higher end Chappals. For now, for me its a pass.

Coming back to Original Question Relaxo or Acrysil:

- They are not in the same segment hence not directly comparable.
- For comparison sake, Relaxo has a much higher probability of consistent returns.
- Detailed study on Acrysil left for another day, primary reason is that Schock process technology (10% owner of Acrysil) accounts for 75% of worldwide quartz sink production.
- Acrysil products are sold to top 10% income strata for whom money is not a constraint, but style, aesthetics or superior performance is paramount, this is 180° crosswise to Relaxo model.
- Chances of losing money are low in either
- Growth is likely to be more consistent in Relaxo since it has reached critical mass
- Acrysil has over 60% market share in India but probability of consistent growth like clockwork are low
- However, probability of re-rating to 35PE or more is higher with premium products, which is advantage Acrysil
- Acrysil's return ratios are likely to suffer as it chases other product lines
- Downside, if dividends are any barometer to protect downside then 0.4% yield of Relaxo offers stunted support
- So, the answer is NOT AT ALL CLEAR which will perform better over next five years

Every person is unique:

Any single one of you is likely to make more money than me, Buffett, Munger and RJs of the world in certain stocks only if you stop following other but instead listen to your own conviction and heart. In fact some of you may have already missed few stocks by following others.

Opportunity Cost and second, third best alternatives:

I would invest either in Unilever Nepal with 8% yield at 10 PE. If I can't do that - I would spend two months to try to get a Stock Trading Account opened in Bangladesh. I disclosed this one to my partners and friends couple of months back when Bata Bangladesh was at 600 Rs and 5% yield and PE of 10.5. Indian citizens are allowed to invest in Bangladesh equity markets.

Even today Bata Bangladesh at 4% dividend yield and PE of 14 is far superior opportunity with leadership position and great menagement. (I think over 40% share in Bangladesh).

Hence my answer, is a bit round about but you get the picture. You can go crazy over financial and cash flow, SWOT and all the other fancy analysis of Bata Bangladesh, I think you will like the results. Also, not being a sales man but do read  AR 13 of Acrysil.

Since value cost matrix for every investor is unique and different, otherwise shares will stop trading altogether, a share is likely to be on buy bucket of one person and sell bucket of another. Also, I want some dividend to protect downside in worst case scenario. 5% Rs on JK Bank or 4% for Acrysil looks better than 0.5% for Relaxo.

I have been insisting that you increase your opportunity cost. It can take about 2 months to execute the process for an Indian National to open Stock Trading account in Bangladesh.

Enjoy and get rich

Monday, September 23, 2013


Long term investors typically search for stocks with high RoE. You can google Warren Buffett ROE.

Or Charlie Munger ROE. There are books, cults, clubs dedicated to these two persons.

Whilst recognising the importance of RoE and fact that long term stock compounding will do no better than what the underlying companies' RoE does, it has more often than not proven to be self defeating to search companies over RoE over 18%. Its the direction of RoE that makes all the difference, that direction is the land of 20-50 baggers. Rerating coupled with Earning Growth are multiplied to form what results in material dreams being realised.

I recently read a 60 page report by Garry Evans, head of HSBC Global Equity Strategy which validated my own conclusion.

Why ?

Companies which already have 30% ROE are either expensive (PE over 40, eg: Nestle, Unilever) that it would take decades of patience to compound at 20% or market size is saturated with few established leaders. In short, market has already recognised.

Companies with lowest ROE quintile have outperformed highest companies in highest ROE quintile, time and again.

In my search of past 50 baggers, I have found that companies with RoE in range of 12-18% are the most likely candidates for re-rating even though their sales growth may continue at 15% plus.

Rahul Paliwal, a friend of mine had a great call on Relaxo at 260 Rs, which I ignored as Titan was at 145 and other quality names were also cheaper. Nobody mentions that Relaxo was at 42 Rs in 2003 and only 32 Rs in 2009 after six years of penance. Management quality is at par with the best.

At my stage in life, while not even close to being a billionaire yet, I stopped watching CNBC five years back. In the past two years I stopped watch any TV interview, other than following a few companies. I have also stopped following experts and billionaires as I believe that in the Munger speak they are too narrowly focussed in a single squirrely field of expertise. I am finding and realising that life is most fulfilling when lived in harmony with the cosmic plan, knowing your full potential, your position in infinite, of which holding share certificates are infinitesimally tiny part, definitely not the heart, although I can add that myself included, we have given it a lopsided share in the grand scheme of things. Also, we are greatly under estimating our potential both spiritual and mental by consigning it to domain of insurmountability, impossibility or disbelief and something that would happen in a distant future.

Found another small company (infact the only small company that I liked in Australia), with 60 years of successful operation, availble for 120 Crores INR, any Indian national should be able to buy, listed on ASX with 70% market share in Australia for the past couple of decades.

Company is available at only 7 times earnings and 5% dividend yield, which is higher than term deposit rates of 4 years.

The company is a likely candidate for acquisition by Kraft or Nestles of the world.

Bees are disappearing:

There was a book on bees mentioned earlier here.

Disclosure: Not invested

Saturday, September 7, 2013

Multi generational investing Idea #3 with two sidekicks

Idea is Unilever Nepal, an 80% subsidiary of Unilever India. I don't believe it deserves much research.

Needless to say, company dons all the insane numbers that unleashes torrential bliss for an equity analyst; 100%+ ROE, market leader, 90% dividend payout, wide and increasing competitive position, deep product line, revenue and profit growth etc.

Current Market Price: 10,200 Nepal Rs.

EPS: 903 Rs

P/E: 10

Dividend: 760 Rs

Face Value: 100 Rs.

Market Cap: 900 Crores Nepal Rs, less than 100 million USD.

Dividend yield: 8%

# of shares: 9,20,000 out of which 80% are held by parent, another 10-15% captured by tightwad hoarders, sorry, long-term-investors.

Ultimate Parent's market cap 110 Billion USD.

Nepal's per capita income is 1/3rd that of India.

Unilever Nepal has already been 100 bagger over the past 15 years, I am expecting another 200-500 bags over next 30 years, assuming man is not extinguished along with his atomic fate.

Good thing, stock does not show up on any stock-screener because foreign investment is not allowed as yet, investment can be done through Nepal Citizen  alone.

Year Revenues Net Profits Crores * # of Shares** Earning Per Share *   * In Nepal Rs
2002 6.75   920,700 73  ** Face Value 100 Nepal Rs (Hindustan Unilever owns 80%)
2003 Growth 25% 4.25   920,700 46.28 40 Rs Dividend
2004 9.31   920,700 101.38
2005 12.7   920,700 138.3
2006 18.91   920,700 205
2007 23.81   920,700 259 220+ Rs Dividend
2008 145 26.3   920,700 286 250+ Rs Dividend
2009 214 33.5   920,700 364 300+ Rs Dividend
2010 290 51   920,700 555 350+ Rs Dividend
2011 337 61   920,700 664 400+ Rs Dividend
2012 420 70.26   920,700 763 680 Rs Dividend
2013 472.47 83.13   920,700 903 760 Rs Dividend


Sidekick A) Museum Grevin

Every seasoned investor knows traits of a solid company. While one may have to trade off, growth for price, or dividend for yet another dimension. For long term investing, the market position should also be unassailable. eg: India Gate, if it had ticket entry and were a listed entity.

Warren Buffet's Quote to prospective sellers of fine businesses:

``You can sell it to Berkshire, and we'll put it in the Metropolitan Museum; it'll have a wing all by itself; it'll be there forever,'' he says at the February meeting. ``Or you can sell it to some porn shop operator, and he'll take the painting and he'll make the boobs a little bigger and he'll stick it up in the window, and some other guy will come along in a raincoat, and he'll buy it.''

While not close to being  The Louvre, Musée Grévin a 130 year group has wax Museum, resembling  Mademe Tassauds, in Paris, France and another one in  Montreal, Canada is as delightfully attractive for a business owner as it gets. With 5-6% dividend yield and solid business behind it, it could qualify later for a multi-generational investing. I have not done sufficient research to place it on that hallowed altar.

Business looks quite steady, been a 5 bagger in previous decade.

This one can be purchased via Saxo Capital or Kotak Securities or others by Indian Citizens.

Sidekick B) Pepsi Cola Philippines

At 3000 Crores INR market cap, 20PE multiple, 18-20% growth looks reasonable for a great brand. Stock has already tripled in the past two years.

Philippines is the 12th most populous country and 300 Bn USD GDP. Country has similar prospects of development as other emerging countries such as India.

Good luck getting rich !

Disclosure: Invested in Unilever Nepal, not invested in two consorts yet